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ANTA Sports Announces 2014 Interim Results

Overall Rebound in Financial and Operational Performance Riding on Strong Brand Equity and Product Differentiation; Widened Lead Paves Way towards New Summit

(6 August 2014, Hong Kong) ANTA Sports Products Limited (Stock Code: 2020) is pleased to announce the unaudited interim results of the Company and its subsidiaries (the “Group”) for the six months ended 30 June 2014 (the “period”).

Results Highlights

  Six months ended 30 June  
  2014 2013 Change
  RMB million RMB million  
Turnover 4,121.9 3,366.5 +22.4%
Gross profit 1,860.0 1,384.1 +34.4%
Profit from operations 986.1 736.3 +33.9%
Profit attributable to equity shareholders 802.8 625.7 +28.3%
Free cash inflow 824.8 540.6 +52.6%
       
  RMB cents RMB cents  
Basic earnings per share 32.17 25.09 +28.2%
       
  HK cents HK cents  
Interim dividend per share 25 19 +31.6%
       
Dividend payout ratio 61.7% 60.3% +1.4%point
Gross profit margin 45.1% 41.1% +4.0%point
Operating profit margin 23.9% 21.9% +2.0%point
Margin of profit attributable to equity shareholders 19.5% 18.6% +0.9%point

Financial Summary & Operational Performance

The Group Became the First to Recover and Demonstrate Strong Growth Momentum Despite Persistent Challenges in China’s Sportswear Industry
  • Turnover increased by 22.4% to RMB4.12 billion for the period (2013 1H: RMB3.37 billion) not only due to growing demand for our differentiated value-for-money products, but also due to notable growth in other businesses, particularly in the Kids, Fila and e-commerce businesses
  • Profit attributable to equity shareholders rose by 28.3% to RMB802.8 million for the period (2013 1H: RMB625.7 million); basic earnings per share amounted to RMB32.17 cents (2013 1H: RMB25.09 cents)
  • Gross profit margin rose by 4.0 percentage point to 45.1% (2013 1H: 41.1%) for the period, and operating profit margin and margin of profit attributable to equity shareholders rose by 2.0 percentage point and 0.9 percentage point to 23.9% and 19.5%, respectively (2013 1H: 21.9% and 18.6% respectively)
  • The Board of Directors proposed an interim dividend of HK25 cents per ordinary share (2013 1H: HK19 cents), representing a payout ratio of 61.7% of profit attributable to equity shareholders for the period (2013 1H: 60.3%)
Brand Equity Enhanced by Diversified Sponsorship Resources and Highly Efficient Marketing Strategy
  • As the Sportswear Partner of the Chinese Olympic Committee (“COC”), the Group tailor-made the winning outfits for the Chinese Sports Delegation (“CSD”) to the Sochi Winter Olympics, further deepening its brand image as representing China’s sports essence
  • Reinforced influence and leading position in China’s basketball market by adding Chandler Parsons, a rising NBA player, to the star-studded “Basketball is Priceless” team consisting of Rajon Rondo, Kevin Garnett and Luis Scola
  • Famous Chinese athletes such as Olympic boxing gold medalist Zou Shiming and active Chinese table tennis champions Zhang Jike and Liu Shiwen endorse ANTA products
Retail-oriented Strategy Effectively Improved the Profitability of the Group and Retailers, Realising Sustainable Growth
  • Implemented a streamlined distribution structure and comprehensive retail channel management, and closely monitored retail sales performance and in-store inventory level
  • Conducted thorough analysis of real-time data and provided retailers more precise order guidelines
  • Strictly required retailers to follow our retail discount policies so as to strengthen their competitiveness and profitability
  • Further strengthened product differentiation and optimised the flexibility and efficiency of replenishment so as to satisfy the unforeseeable demand for in-season signature products
  • Thoroughly examined retailers’ store opening plans; continued to enhance store efficiency and maintain a strong presence in second- and third-tier cities across China

Business Review

Consolidating professional brand image and enhancing brand differentiation by all-round sponsorship resources and marketing campaigns

The Group continued to integrate influential sponsorship resources with innovative promotional channels to reinforce the differentiated brand image and level of brand association. The Group continued to work closely with the COC and the CSD, with the CSD wearing designated ANTA Champion Dragon Outfit at the 22nd Winter Olympics in Sochi, Russia, placing ANTA’s differentiated brand image in the spotlight again. To strengthen the association between ANTA and the COC, the Group launched a comprehensive marketing campaign to integrate sponsorship resources with various media channels such as television, WeChat and Weibo, etc. This has greatly enhanced ANTA’s brand exposure and further solidifies ANTA’s image of representing China’s sports essence.

During the period, the Group also provided professional and quality sportswear outfits to the national teams from the Water Sports Management Centre, the Winter Sports Management Centre and the Boxing and Taekwondo Sports Management Centre. Furthermore, two-time Olympic boxing gold medalist Zou Shiming and active Chinese table tennis champions Zhang Jike and Liu Shiwen also joined the Group in promoting ANTA’s differentiated products and speeding up the development of sports in China, achieving a win-win marketing outcome.

The Group continued to strive to enhance its functional image by leveraging exclusive and influential sports sponsorship resources, particularly in the basketball, running and cross-training segments during the period. The Group struck a deal with Chandler Parsons, a rising NBA player, which complement the deals with NBA players Kevin Garnett, Luis Scola and Rajon Rondo to form strong basketball resources, and cemented ANTA Sports’ professional image in China’s basketball market. Adhering to the “Basketball is Priceless” strategy, the designated NBA players’ basketball shoes have been positioned as “National Basketball Shoes”, featuring selling prices of only RMB399. The all-rounded marketing stimulated the sales performance of the entire basketball series, and has also consolidated ANTA’s professional brand image in the mass segment.

During the period, the Group further integrated different media channels with signature running products to enhance its influence in the running segment in the mass market. The Group launched an interactive marketing campaign to promote the new ANTA A-Web 2.0 running shoe (“A-Web 2.0 running shoe”), and sponsored the Olympic Day Run for the sixth consecutive year, which was integrated with online marketing by launching a nationwide Olympic Day Run charity campaign, in order to maximise the effects of marketing efforts and to make a bigger contribution to the community.

Well-defined retail-oriented strategy successfully improved retailers’ competitiveness

During the period, the Group further optimised the retail-oriented strategy to capture market opportunities. The Group built retail-oriented mindset and system, and worked closely with retailers to gather customer feedback in order to develop products that are truly welcomed by the mass market. Retail data and market information are shared with retailers on a regular basis. The Group also formulated more accurate product development plans, ordering guidelines and replenishment forecasts for retailers, so as to ensure the inventory to remain healthy. On the other hand, retailers are required to strictly comply with the Group’s retail related policies, so as to strengthen their competitiveness and profitability.

Furthermore, the Group insisted on projecting a consistent store image across its nationwide distribution network, continued to encourage retailers to upgrade their store layouts in line with the sixth generation store image during the period, and further optimised the “COC Corners” and “Grand Basketball Corners” at key stores. The Group also continued to adopt flattened sales management and streamlined its already lean and effective distribution structure so as to facilitate better interaction with retailers. The Group also strategically optimised all forms of retailers’ stores in the ever-changing market during the period. As at 30 June 2014, the number of ANTA stores stood at 7,701 (end of 2013: 7,757), the number of Kids sportswear series stores stood at 987 (end of 2013: 881).

Proactive development of Fila Business in the PRC, overseas markets and e-commerce business, revitalising sustainable growth

The Group spared no effort in strengthening presence of FILA brand by progressively opening stores at key locations in major cities in the PRC, and fostering the quality of store decor and product displays, so as to drive in-store traffic and bolster sales. As at the end of June 2014, there were 441 FILA stores operating in China, Hong Kong and Macao (end of 2013: 416). In order to raise awareness of FILA, a large-scale FILA event was held in February 2014 in Shanghai to launch the Anna Sui for FILA collection’s stylish products and the “Santorini Blue” - themed 2014 Spring/Summer collection, and to announce that popular Korean star actor Lee Min Ho has officially become a FILA ambassador. FILA’s trendy lifestyle brand image is also fully demonstrated to target consumers through impressive POPs featuring Shu Qi, another FILA ambassador. In addition to being an Official Sports Uniform Sponsor for the Hong Kong, China Delegation, FILA is also the Official Apparel Sponsor for the Hong Kong Table Tennis Association and the Official Sponsor for 2014 World Ladies Championship. Furthermore, FILA tailor-made uniforms for the CCTV sports channel reporters at the 2014 FIFA World Cup, enabling FILA products to capture the attention of yet more consumers.

Regarding overseas markets, the Group further expanded presence in emerging markets to capture the market opportunities and to sustain business growth during the period. In addition, the Group continued to leverage exclusive sponsorship resources, renowned endorsers and eye-catching advertising campaigns to enhance international exposure and to improve sales performance in overseas markets.

On the e-commerce front, the Group is operating its own official online flagship store (Anta.cn), and has co-oporated with popular e-commerce platforms such as Tmall.com, JD.com, Vip.com and Amazon.cn. The Group also allows some established online retailers to sell ANTA products under its guidance and strict control. The Group’s e-commerce business has already evolved from a channel for clearance of aging inventory to a new, interactive platform that generates additional sales by promoting brand and innovative and value-for-money products to both online and offline shoppers. Meanwhile, the Group devoted to improving the webstore interface, offering broader product variety, optimising logistical efficiency and after-sales services to satisfy online shoppers’ needs. The Group has also expanded the portfolio for “exclusive online products” which can only be found in e-commerce channels so as to create synergy between online and offline channels.

Enhance technology and product innovation, with cost-effective supply chain maintaining a better value-for-money

The Group continued to emphasise product innovation, responsiveness in the supply chain, and cost and quality controls. During the period, the Group further optimised R&D and supply chain capabilities to bring about greater product differentiation. The Group regularly upgrade the signature technologies such as A-Jelly, A-Silo, A-Cool and A-Proofrain to maximise the value of the diverse range of products. During the period, the Group introduced over 900, 900 and 760 new styles to its footwear, apparel and accessories portfolios, respectively, to cater to both professional and casual users. To fulfill the different needs of more sophisticated consumers, the Group launched the new A-Web 2.0 running shoe during the period. The revolutionary A-Web 2.0 running shoe integrates new A-Web 2.0 technology with A-Loop technology and is poised to become a landmark in the history of ANTA’s running shoe lineup. With a selling price of only RMB399, the A-Web 2.0 running shoe has received an overwhelming response since its launch in Q2 this year.

In addition, the Group has always put offering comfortable and protective products to consumers as top priority, and continues to enhance the quality control capabilities throughout the entire manufacturing process. As a result, the Group has adopted ISO international testing standards to ensure that the quality of all products complies with international standards. The Group also developed cohesive relationships with quality OEM and ODM in order to fully support the supply chain partners to enhance their quality controls and workflow efficiency. In order to enhance the flexibility in replenishment and to maintain cost-leadership, the Group has further strengthened supply chain so as to shorten the production lead time and enhanced production efficiency. During the period, the respective proportions of self-produced footwear and apparel and procured footwear and apparel were 54.3% and 15.9%, respectively (20131H: 52.4% and 16.1%).

Prospects

Looking ahead, ANTA Sports will continue to focus on effectiveness and the synergy between its diverse sports resources and branding strategies, make every effort to provide a full range of high-quality outfits to the CSD and numerous sponsored China national teams, including the gymnastics team, which has always been a strong contender for gold medals and a symbol of China’s pride in sports. ANTA’s unique image of representing the essence of China’s sports will be further rooted in consumers through all forms of marketing platforms such as digital media and social networking websites during the Incheon Asian Games, one of the most notable sporting events in 2014. Furthermore, the Group will leverage the “Basketball is Priceless” team’s strong influence and popularity, and arrange meetings of the basketball endorsers with Chinese fans to enhance customer loyalty to ANTA and its products, and to boost sales of ANTA’s value-for money premium products.

The Group will continue to implement retail-oriented strategy to help retailers improve their retail performance, maximise their profitability, enhance their store efficiency and manage their orders and in-store inventory. The Group has built solid presence at prime locations in high-potential cities in China, bringing more opportunities to gain market share. The Group expects that there will be total of between 7,700 to 7,800 ANTA stores, 1,000 to 1,100 Kids sportswear series stores and 450 to 500 FILA stores in the PRC by the end of 2014. The Group will roll out more new and unique products on its e-commerce platforms, and also plans to allow offline distributors to operate online stores with an aim to maximise mutual benefits between web-based and brick-and-mortar stores.

The Group will continue to provide comfort and foot protection for adults and kids by integrating advanced technologies such as the newly launched A-Web 2.0 and A-Loop into its value-for-money footwear products. Moreover, all forms of apparel technologies and high performance fabrics are applied to the Group’s diverse range of apparel products. In addition, more eye-catching FILA collections will be launched, and FILA’s unique brand image and trendy lifestyle will be showcased to high-end consumers through cross-border cooperation with Anna Sui, highly-effective publicity campaigns and in-store POPs featuring FILA’s brand ambassadors Shu Qi and Lee Min Ho.

The Group’s cost and quality controls, execution capabilities and production techniques will be strengthened, allowing it to meet potential demand with cost-competitive and market-responsive supply chains.

Mr. Ding Shizhong, Chairman and CEO of ANTA Sports, said, “China’s sportswear industry is generally expected to still face uncertainty arising from the lack of product differentiation and intense competition in the near term, and industry players are recovering with different pace. However, the Group stands out among peers; its results was the first to bottom out and fully recovered with a significant growth. All these achievements attribute to the Group’s core competitiveness, such as strong brand equity, effective marketing strategies, sound management of distribution networks, sophisticated retail monitoring systems, cost-efficient and responsive supply chains, strong R&D capabilities and highly differentiated products. Looking ahead, we will keep moving to tap the market potential, continue to leverage on these strong fundamentals and effective retail-oriented measures, so as to further widen our lead in various market segments and to pave the way towards new peak, leading to higher profitability and achieve sustainable growth.”

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About ANTA Sports Products Limited
As one of the leading branded sportswear enterprises in China, ANTA Sports Products Limited primarily designs, develops, manufactures and markets sportswear, including sports footwear, apparel and accessories. The Group has an established an extensive distribution network with a leading presence in second and third tier cities in China under the management of regional distributors. The Group places great emphasis on branding by integrating sports resources and sponsorship, advertising and promotional activities and consistent store image to enhance brand and product differentiation. For the past 13 years, its footwear has been enjoying a leading position in China’s composed index on market share.

For further information, please contact:

ANTA Sports Products Limited
Investor Relations Department
Tel: (852) 2116-1660
Fax: (852) 2116-1590
E-mail: ir@anta.com / ir@anta.com.hk

Hill & Knowlton Asia Limited
Linda Pui / Ka Wai Li
Tel: (852) 2894-6378 / (852) 2894-6252
E-mail: anta@hkstrategies.com